How East-West Competition Turned Balkan Energy into a Geopolitical Chess

Ariel Cohen-Europe’s dependency on Russian gas, especially in Central and Eastern Europe, has become a major strategic liability for the West. This is especially true as the war in Eastern Ukraine has brought relations between Moscow and Brussels as well as many of the European capitals to new lows. Russia enjoys a de facto monopoly on gas supplies to the Baltic States, Bulgaria, Moldova, Serbia, and Slovakia, as well as dominating the energy scene in Hungary and other European countries. This raises serious questions with regards to the Kremlin’s political influence in capitals from the heart of Europe to the Mediterranean. Allegations of corruption permeate political debates about the Russian gas supply and are putting increasing pressure on the EU and the nation-states to find economic alternatives.

This is not the first time the Central and East European countries find themselves in a vulnerable position vis-à-vis Moscow. In early 2009, Ukraine rejected Russia’s proposal to raise gas prices from $179.50 to $250 per 1,000 cubic meters. Vladimir Putin, then Prime Minister, accused Ukraine of siphoning off gas and ordered Gazprom to shut down all gas transit via Ukraine. As temperatures dropped below zero degrees Fahrenheit, it wasn’t just Ukraine feeling the effects of the disruption, but also 18 other European countries: Austria, Bosnia, Bulgaria, Croatia, Czech Republic, France, Germany, Greece, Hungary, Italy, Macedonia, Moldova, Poland, Romania, Serbia, Slovakia, Slovenia, and Turkey. The cut off, which led to a state of emergency in Slovakia and the closing of several factories in Bulgaria, served as a wakeup call for the EU.

The situation today is not as dire, and based on Energy Security Stress Test released by the European Commission last month, if all member states cooperate, protected consumers would not be affected during a prolonged disruption. The Commission’s report also states that Bosnia, Bulgaria, Estonia, Finland, Herzegovina, Macedonia and Serbia are most vulnerable.

There is somewhat different picture when it comes to the nuclear sector. To reach its energy security and 2020 carbon emission goals and to reduce its overall exposure to energy security risks, Europe will have to diversify its sources of electricity beyond still very expensive renewables and recognize the continuing importance of nuclear energy, a sector in which the security of supply is driven by market competition. The Russian government has made a conscious effort to support, promote and build this flagship industry. Rosatom’s turnkey solution allows for competitive pricing, which has led to a doubling of the company’s international construction portfolio from the $50 billion in 2012 to an expected $100 billion by the end of this year. Meantime, US-based Westinghouse has tried to secure long-term contracts in Europe, and it is now taking advantage of the political and security tension between the EU and Russia over Ukraine. Thus, the stage is set for a competitive match.

Energy supplies to Central and Eastern Europe, and especially the Balkans, have become a “football” in the worsening relations between Russia and the West – and the countries of the region. What is needed is dispassionate policy analysis taking into account both geopolitical and economic factors, which this article attempts to provide.

Europe’s Natural Gas Dependency

According to the European Commission, the European Union consumed around 530 billion cubic meters (bcm) of gas in 2010. The European gas demand has been stagnating since 2010, when it peaked as a result of a colder winter than usual. Nevertheless, analysts do not foresee any significant growth in future gas consumption. At least until 2020, the European gas demand is unlikely to increase due to a weak economic recovery in the gas-intensive European industry sectors, if any. Improved insulation of apartment buildings and more efficient use of renewable energy sources all across the continent will also contribute to the stagnation of gas demand.

Conclusion

The security of Europe’s energy supply, especially in the Balkans, rests not just in price, but also in availability and reliability of resources, and separation of the business models from geopolitical agendas. This is the biggest challenge in the region. The already struggling economies of South European democracies can are caught in a geopolitical game between the West and Russia. Transparency in decision-making is essential to curb corruption plaguing the Balkans and to protect the taxpayer value, all the while ensuring that geopolitical considerations are taken into account when making strategic energy decisions.(Journal of Energy Security)

Ariel Cohen, Director, Center for Energy, Natural Resources and Geopolitics (CENRG) and Senior Fellow at the Institute for the Analysis of Global Security (IAGS)

Read the full study here:http://ensec.org/index.php?option=com_content&view=article&id=563:how-east-west-competition-turned-balkan-energy-into-a-geopolitical-football&catid=126:kr&Itemid=395